Litigation/ADR: Tort Litigation

A “tort” can mean any type of civil wrong other than a breach of contract for which the plaintiff seeks a remedy. Tort litigation encompasses some very broad areas affecting injury to the person as well as injury to a person’s property or business. For example, tort litigation includes personal injury, medical malpractice, wrongful death and products liability (which may arise when there are injuries resulting from a defect in the manufacturing or design of a product, for example, or a failure to warn). When a large number of persons are harmed by the same product or activity, lawyers for the plaintiff group typically seek to bring a class action.

The harm alleged in a tort action can be the result of negligence or intentional wrongdoing, such as an assault or battery, which may also be a crime. Wrongs against [...]

A “tort” can mean any type of civil wrong other than a breach of contract for which the plaintiff seeks a remedy. Tort litigation encompasses some very broad areas affecting injury to the person as well as injury to a person’s property or business. For example, tort litigation includes personal injury, medical malpractice, wrongful death and products liability (which may arise when there are injuries resulting from a defect in the manufacturing or design of a product, for example, or a failure to warn). When a large number of persons are harmed by the same product or activity, lawyers for the plaintiff group typically seek to bring a class action.

The harm alleged in a tort action can be the result of negligence or intentional wrongdoing, such as an assault or battery, which may also be a crime. Wrongs against a person include harms like defamation, civil rights violations, unreasonable publicity or invasion of privacy. Money damages are typically the remedy sought, but the victim of a tort may also seek an injunction or restitution of some sort, depending on the type of harm alleged. Wrongs against a person’s property or business, such as unfair competition, patent or trademark infringement, may also be considered torts and may be part of the action in business or IP litigation.

Since most individuals and businesses buy insurance to hedge against the risk of large financial loss arising from their possible liability for accidental injury to others, attorneys for the defense often find that they are in effect representing the defendant’s insurance company. Students interested in a career involving tort litigation will want to understand the role that insurance plays in recovery of damages, whether for harms to a person’s property or business or for personal injury claims. It is also useful to understand the distinction between “insurance recovery” lawyers and “insurance defense” lawyers.

Insurers typically have a duty to defend the insured under the terms of their insurance contract. In recent years, policy-holders have increasingly brought “bad faith” claims against insurance companies, complaining that their insurer has improperly refused to pay for their defense in a tort action. When policy-holders sue their insurance companies, they hire “insurance recovery” lawyers. “Insurance defense” lawyers are hired by insurance companies to represent policy-holders who have been sued.

There is no such thing as a typical insurance recovery practice. Some insurance recovery lawyers are generalists and handle a variety of insurance claims and counseling assignments. Others specialize in areas such as director and officer insurance or London insurance market settlements. Insurance recovery lawyers may represent businesses and individuals in a number of matters: reviewing insurance policies to obtain coverage for insurance claims; obtaining counsel in connection with placing their insurance programs; and litigating tort actions against insurers for bad faith in the execution of their insurance contracts. Insurance recovery presents an opportunity to represent plaintiffs in litigation where there is a possibility of obtaining huge awards or settlements for a business or individual client: settlements with insurers often run up to eight or nine figures.

The “big firm” policyholder work almost always involves the representation of major corporate policyholder clients, though only a handful of American Lawyer 200 law firms represent policyholders. Conflicts of interest typically prevent law firms from having both a major insurance recovery practice and also representing insurance carriers. Most big firms represent the insurers and not the policyholders because the insurers use law firms for a variety of corporate assignments in addition to their litigation. However, several dozen “boutique” insurance recovery law firms represent individuals or smaller businesses.

Insurance claims can arise anywhere, and the insurance recovery practice is spread out across the United States, with the largest concentrations of insurance recovery lawyers in Washington, DC, Los Angeles, San Francisco, and Pittsburgh. Until quite recently, policyholders tended to avoid New York (which often had less favorable law than other jurisdictions). However, with the massive litigation concerning insurance coverage for the World Trade Center disaster and some changes in substantive New York insurance law that favor policyholders, the policyholder practice in New York has started to develop.

Insurance recovery is a somewhat cyclical practice in two principal respects. First, liability insurance (that is, insurance that covers the cost of hiring lawyers to defend the policyholder against an underlying tort action as well as any judgment or settlement in that underlying action) necessarily follows the rise of specific types of litigation. For example, when asbestos or environmental or products liability or securities litigation grows, liability insurance disputes concerning those types of litigation also grow. Second, claims involving property insurance (that is, insurance that covers damage to the policyholder’s property and lost profits resulting from that damage) are tied to what the insurance industry calls “cat losses,” i.e., catastrophes. So when the World Trade Center was destroyed or Hurricane Katrina occurred or the Northridge Earthquake struck, property insurance claims increased. When things are quieter on the “cat loss” front (as was the case in 2006 and 2007), property insurance claims tend to decrease.

Insurance also follows changes in the economy. For example, recent years have seen a significant increase in insurance claims involving financial losses arising out of subprime mortgages, collateralized debt obligations, and other financial instruments. Also, intellectual property and technology losses have increased.

Few industries are as heavily regulated as the insurance industry. Attorneys who focus on regulatory issues may be called “insurance regulatory attorneys” or “insurance compliance attorneys.” They are generally found in law firms, insurance companies, and government/regulatory entities, such as state insurance departments.

Any academic experiences that involve legal drafting or regulatory research are recommended as good preparation for an insurance law practice. A course on Contracts is foundational, since insurance policies are contracts, and a course on insurance law would of course be helpful, if offered at the law school. Students interested in an insurance regulatory practice should also take corporate law, mergers and acquisitions, tax law, administrative law, and other courses focusing on regulatory issues.